Rising cost, difficulties in human resources, complicated legal procedures, financial pressure, etc. make Vietnamese construction enterprises face the risk of extinction.
Construction enterprises and challenges from the market
1. Material price fluctuations are too large
Steel prices from the beginning of 2021 to the end of the second quarter of 2022 have increased from 20-60%, at the peak it increased by 60%, equivalent to 17.8 million VND/ton. After many price adjustments until now, the price has calmed down at an increase of over 20%.
Not only the price of iron and steel has increased, but in the last two months due to the influence of petrol and oil prices, transportation costs have increased, so the prices of all other materials such as sand, bricks, stone, cement, etc. have increased. The cost of the bidding package is negatively affected by the increase in the price of materials, an average increase of 18-30% according to the report of the Vietnam Association of Construction Contractors (VACC).
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Notice of price increase continuously sent to DELCO General Contractor during the steel price storm period in 2021
There have been significant fluctuations in the material prices, but Vietnam does not have a mechanism to compensate prices, adjust contract prices appropriately or take specific methods to support contractors, so many construction contractors are facing the risk of serious losses. Many contractors do not dare to participate in public investment projects because the unit price system of Vietnam cannot update the market price. “This is a sad and unprecedented reality in Vietnam.” – Mr. Nguyen Quoc Hiep, Chairman of Vietnam Association of Construction Contractors commented.
Read more: Factors affecting investors’ decision to rent a factory or construct a new factory
2. Complicated legal procedures
In the period of 2020 – 2022, Vietnam is updating a lot of regulations related to the factory construction: QCVN 06:2020/BXD – Vietnam Building Code on Fire Safety of Buildings replacing QCVN 06: 2010/BXD; QCVN 01:2021/BXD – National technical regulation on construction planning has many updated regulations on construction density, the Law on Environmental Protection 2020 changes the criteria for classifying investment projects, etc.The new regulations do not have specific instructions, making contractors to be confused when applying.
The new regulation in QCVN 06:2020/BXD requires fire resistance testing according to the structure, with the actual size as the application in the building, making many construction enterprises to be confused in the inspection and acceptance of fire prevention and fighting at construction sites.
Having to comply with the provisions of the new Law on Fire Prevention and Fighting with particularly high criteria, the mechanism for checking and evaluating materials also has many unreasonable points, both cause waste of materials, and waste time and procedure costs.
According to many businesses, legal procedures for real estate investment are still complicated, so the number of new projects is still scarce. The situation of quite fierce competition in the market caused some businesses to devalue to try to survive, leading to debt when implementing.
3. Difficulties in recruiting construction workers
Scarcity of labor is a difficulty of the construction industry, directly affecting the progress of project.
During the covid-19 period, during the implementation of social distancing and epidemic prevention measures, the number of construction workers at construction sites was mostly reduced. After covid, workers who have returned to their hometown mostly do not intend to return to the construction site but look for other jobs.
Because of the scarcity of labor and the competitive labor market, according to the VACC report, the labor unit price increased by 25%.
Read more: What are the impacts of raising the minimum wage on the foreign investors in Vietnam?
4. Financial pressure
Payment and settlement work with investors is still complicated and difficult, most of the contractors have outstanding debts, especially in the last 20-25% of the project. Under this financial pressure, the fact that banks tighten the credit room for loans makes contractors even more troubled.
DELCO facing market challenges
DELCO usually signs a Lump Sum Turnkey contract, ensuring a package investment rate for the investor. The current price volatility period makes DELCO face more financial pressure than many other businesses. We have to ensure the implementation of the project as committed without incurring any additional costs beyond the agreed contract and design.
DELCO has made great efforts to optimize costs with design solutions and technology solutions to ensure the financial plan as well as the construction quality committed to the investor.
Besides the general difficulties of the market, DELCO is fortunate to receive the trust of many FDI clients and partners. It is thanks to the quality construction, warranty policies, the enthusiastic support for clients, that DELCO has established reliable relationships, long-term cooperation with large investors both at home and abroad, the ratio of DELCO’s old clients and referrals are quite high.
We understand that we need to make more efforts, hone our expertise and accumulate experience, to meet even more stringent requirements, bringing peace of mind to our clients.
